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The Sinocism China Newsletter For 09.17.12

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Sunday was another ugly day of anti-Japan protests across China in what apparently were the largest demonstrations against Japan since 1972. You can see pictures of some of the chaos here.

Whether the Anti-Japan Riots Are State-Sponsored as ChinaGeeks writes, or state-tolerated, the message from the Party and official media is now to end the violence. State media has launched a coordinated call for “rational patriotism”.

At the same time, the Chinese people should be rational and obey the law when expressing patriotic feelings, and they should abstain from “smashing and looting.” …Wisdom is needed in the expression of patriotism.

Mainstream society clearly opposes violent protests this time. There is no reason to suspect that the government is turning a blind eye to the violence seen over the weekend. This is simply the view of those who make a habit of criticizing the government.

Ming Pao Newsflash: Numerous mainland cities are experiencing days-long Anti-Japan protests in defense of China’s sovereignty over the Diaoyu Islands. Authorities have begun exerting increasingly strict control over the demonstrations. Police in the city of Changsha, Hunan Province, issued an edict urging authorities to “complete the work of influencing employee ideology,” forbidding municipal government employees from instigating or taking part in anti-Japan demonstrations and marches. The edict also orders public employees to immediately report any incidents to their superiors. Reports from the city of Xiamen, Fujian Province, also claim protests in defense of the Diaoyu Islands were met with suppression from the authorities. High level members of the Beijing media revealed they had received orders from above that allow the media to “report on nationalist sentiment, but breaking information from the street must be strictly controlled. Interviewing Diaoyu defenders is strictly prohibited.

Now that the message from Beijing is clear, expect the security services to respond. Police across China say they will arrest protesters who break the law (多地警方呼吁民众理性爱国 打砸抢烧将被追究) and Guangzhou police are even calling for netizens to send them pictures of people engaged in looting and violence (广州警方鼓励网友发照片举报打砸者). If the security services do not restore order, consider booking a flight…

The violence may abate but it has shaken a lot of people, and many prominent Chinese on Weibo have tied these protests to the unwillingness to address the true history or causes of the Cultural Revolution. This scene of wannabe Red Guard losers in Beijing doesn’t help.

Then again, perhaps allowing violence for a couple of days has in part been a political strategy to “draw the snakes out of their holes 引蛇出洞”. It has been done before in China, nearly perfected by Mao Zedong in fact. Some prominent people on Weibo are predicting lots of arrests in the coming days. While hatred of Japan will not go away, could these protests help excise some of the more reactionary elements in China’s current political environment? We can always hope, right?

…instead of blindly boycotting Japanese goods, China should work out a comprehensive plan which should include imposition of sanctions and taking precautionary measures against any Japanese retaliation. China should also have several rounds of policies ready to undermine the Japanese economy at the least cost of Chinese enterprises.

A brief flurry of economic attacks against bananas, mangoes and tourism may have led the Philippines to quickly back down in the recent dispute over Huangyan island/Scarborough Shoal, but economic warfare against Japan is likely to be painful for China as well. The Japanese stock market is closed Monday so we will need to wait another day to see how worried investors really are.

The longer-term damage to the China-Japan relationship is unclear. Today’s People’s Daily has another piece from Zhong Sheng (警惕日本以拖待变的侥幸心理（国际论坛） 钟 声) that after much invective concludes by saying Japan must return to the common understandings and consensus between the two nations and get back on the track to negotiating a settlement to the dispute.

“I’m pretty frank with people: I don’t think that we’d allow the U.S. to get dragged into a conflict over fish, or over a rock,” said a senior U.S. military official, speaking on the condition of anonymity to discuss deliberations within the Obama administration. “Having allies that we have defense treaties with, not allowing them to drag us into a situation over a rock dispute, is something I think we’re pretty all well-aligned on.”

Neither Japan or China views these disputed islands as just rocks. [UPDATE: This statement, on such a sensitive issue, is not likely to be a slip of the tongue. It could be a warning to the Japanese to get back to the status quo and stop rocking the rocks, so to speak. China certainly thinks that Japan believes it can act “recklessly” on this issue because Uncle Sam will protect it. END UPDATE]

While U.S. officials have said their military rebalancing isn’t aimed at containing China, “the circle around China orchestrated by the U.S. seems to be tightening,” Zhao Xiaozhuo, a senior colonel in the People’s Liberation Army, wrote in a Sept. 13 opinion piece in the China Daily, a state- run newspaper. An illustration accompanying the article showed Uncle Sam pouring gasoline on a fire.

A Chinese think tank has said that there is unlikely to be conflict over the disputed islands unless Japan’s Self Defense Forces cross the “red line” and take military control of the islands (解放军少将：动武底线是日本自卫队进入钓鱼岛|少将|动武|底线). Wang Shuo, the managing editor of the influential Caixin Magazine, writes that war is not an option. So Peking Opera meets Kabuki, sound and fury but little real violence and no military clash?

Well funded defense groups have rapidly absorbed the technology and expertise needed to build complex weapons, freeing China from its former heavy reliance on Russian and other foreign equipment, Chinese and Western experts say….”A country’s defense sector should reflect the strength of the country’s economy,” says Wu Da, a portfolio manager at Beijing-based Changsheng Fund Management Co Ltd which invests in listed Chinese defense stocks.

Buy defense stocks, especially those with naval weapons systems?

This latest eruption of violent nationalism should help America’s pivot to Asia and bad hurt China’s soft power initiatives and attempts to convince the world it is making a “peaceful rise”. So far the military aspect of the US pivot to Asia has been mostly rhetoric, in part due to budget constraints. Could this weekend’s craziness convince any Asian nations to offer financial support to the US for a more robust presence in the region?

Exclusive: Ghost warehouse stocks haunt China’s steel sector | Reuters – fake receipts in China? shocked, just shocked…//As defaults have risen in the world’s largest steel consumer, lenders have found that warehouse receipts for metal pledged as collateral do not always lead them to stacks of stored metal. Chinese authorities are investigating a number of cases in which steel documented in receipts was either not there, belonged to another company or had been pledged as collateral to multiple lenders, industry sources said. Ghost inventories are exacerbating the wider ailments of the sector in China, which produces around 45 percent of the world’s steel and has over 200 million metric tons (220.5 million tons) of excess production capacity. Steel is another drag on a financial system struggling with bad loans from the property sector and local governments… Industry sources estimated cases that have already come to light account for about 5 billion yuan ($787.50 million) of bad debt in Shanghai, one of China’s biggest steel trading centers.

新莫干山会议：寻找改革新动力_财经频道_一财网 – meeting of economists in Moganshan to discuss reforms, echoes of an earlier Moganshan meeting//国家发改委国际合作中心和本报联合主办“中青年改革开放论坛”，聚焦“创造公平、开放与可持续发展的社会”。

Short-selling in China: Rotten eggs and gadflies | The Economist – when the boffins crunched the numbers, they found that the shares of Chinese firms that did not use RTs were also punished heavily by the market along with those that did. This “China bashing”, they argue, means “investors are throwing the baby out with the bathwater.”

The Spillover Effect of Chinese Reverse Merger Frauds: Chinese or Reverse Merger? by Masako Darrough, Rong Huang, Sha Zhao :: SSRN – This paper examines the spillover effect of the news about fraud allegedly committed by Chinese reverse mergers. In a reverse merger, a private, operating company becomes public by being acquired by a public shell company. A large number of Chinese companies became public in the last 10 years through reverse merger with U.S. shell companies rather than through the traditional initial public offering. A number of these companies, however, have been found to be involved with fraudulent activities or reporting. Once the regulators and the public became alarmed by the frequency of fraud revelations, the stock prices of not only the offending companies but also those of other companies were hammered. Those that were affected more negatively are other Chinese reverse mergers and U.S.-listed Chinese IPOs. The negative spillover effect differs across non-fraudulent CRMs according to operation locations and auditor characteristics. Since reverse mergers involving non-Chinese companies appear to have escaped the wrath of investors, the stock market reaction to fraud news appears to be China bashing rather than reverse merger bashing.

Chinese Demand Is Key to Cotton Prices – WSJ.com – In its latest report on supply and demand, the U.S. Department of Agriculture estimated Chinese imports will fall 51% in the 2012-13 marketing year that began Aug. 1 compared with the previous year. Domestic consumption is also projected to be down 2.6% from the 2011-12 marketing year

POLITICS AND LAW

Xi Jinping Returns Amid Tumult in China – NYTimes.com – The police limited the number of protesters on the street outside the embassy; some people ate lunch on the roadside while they waited for their turn to march. Others waved banners with slogans about taking control of the islands or chanted, “Death to Japan.” Some analysts see a relationship between the protests and the political tensions surrounding the disappearance of Mr. Xi, the vice president of China, who had been out of public view for two weeks before reappearing on Saturday.

天安门广场翻新改造迎国庆 地砖石材增厚近一倍–24小时滚动新闻–人民网 – interesting announcement about the renovations to Xinhua Gate in Beijing, got a lot of comments on Weibo// 截至9月12日，天安门地区人行步道地砖已完成更新铺设。此前，广场步行道地砖经多年使用，很多已出现破损、裂缝。新地砖的石材比以前增厚近一倍，由原来的8厘米增至15厘米，抗碾压能力更强

Doubts grow on Mitt Romney’s China threats – Ben White – POLITICO.com – Mitt Romney is hoping his tough talk on China policy will win him votes — but few of his big business donors or fellow Republicans support what he’s saying or believe he’d follow through if elected. And if he did, many analysts say, he’d likely spark a disastrous and counter-productive trade war that would hurt both American consumers and the workers he says he’s trying to protect. But Romney advisers say voters shouldn’t expect him to back off the tough talk if he gets elected, and other experts say fears of a “trade war” are overblown since the Chinese need the American market just as much consumers like cheap Chinese imports.

Review & Outlook: Romney’s Trade Pessimism – WSJ.com – Perhaps the Romney campaign sees this anti-China protectionism as a way to counter Mr. Obama’s tax policy of class war and envy. But you can’t defeat one form of envy politics with another. You can only defeat it with the politics of growth. Mr. Romney is struggling to sell his economic message because he’s never taken the time to actually make it.

AP SOURCES: OBAMA LAUNCHING CHINA TRADE CASE – Senior administration officials say President Barack Obama will launch a new trade enforcement case against China Monday, accusing the Asian power of putting American manufacturing at a disadvantage by subsidizing Chinese exports of automobiles and automobile parts.

FOREIGN AND DEFENSE AFFAIRS

UN to get shelf submission–chinadaily.com.cn – Beijing announced on Sunday it will submit a partial submission concerning the outer limits of the continental shelf to the United Nations in its latest move to defend its maritime sovereignty. The move came as the Japanese prime minister vowed to take the Diaoyu Islands dispute to the UN General Assembly.

China struggles to curb anger as protesters denounce Japan | Reuters– In the biggest flare-up on Sunday, police fired about 20 rounds of tear gas and used water cannon and pepper spray to repel thousands occupying a street in the southern city of Shenzhen, near Hong Kong.Protesters attacked a Japanese department store, grabbed police shields and knocked off their helmets. One protester was seen with blood on his face. At least one policeman was hit with a flowerpot.

David Li, co-founder and CEO of YY Inc, Hans Tung and Frank Yu talk tech – hear duowan/YY has engaged bankers, looking to file for a US IPO soon. good luck to them in this market// David Li is the Co-Founder and Ceo of YY Inc. in Guangzhou. He started out in 2005, creating Duowan.com, a portal for China’s gamers. In 2008, David launched YY, a voice-based gaming communications service that provides voice chat over the Internet and tech chat in realtime for gamers.

Scholars with Spine: Notes from the field of China studies | Initiatives for China – Not many are the China scholars in the West who are willing to stick their neck out for Chinese dissidents, democrats, and other “troublemakers.” Why is that? First, it is perfectly human, probably, to shrink from trouble. But we can be more specific in our reasons. Obviously, some number of scholars are simply sympathetic to the Chinese regime. But a greater number are wary of crossing that regime, because they need or wish to go to China, and must have visas. Also, there is a great deal of Chinese money in China studies — and biting the hand that feeds you is problematic. In sum, there are plenty of reasons to steer clear of controversy. Plenty of reasons to avoid Beijing’s bad side, and blacklist.

FOOD AND TRAVEL

‘Issuance of business visas not to be halted’ |Politics |chinadaily.com.cn– Visa agencies said on Sunday that they have received no information that corroborates reports suggesting that China is suspending its issuance of business visas. Meanwhile, the Beijing municipal government said it was about to introduce a policy that would allow certain foreign citizens who are traveling through Beijing on their way to places outside China to stay in the city for up to 72 hours without having to apply for an entry permit.

Thanks for reading. The best way to see this daily post is to subscribe by email, especially if you are in China, as Sinocism is blocked by the GFW. You can also follow me on Twitter @niubi or Sina Weibo @billbishop.